The US government’s ongoing efforts to streamline its workforce have resulted in record layoffs, with significant job cuts being announced across multiple federal agencies. Despite the substantial number of federal employees being laid off, the payroll for these workers remains a small fraction of overall government spending. This push for efficiency, spearheaded by both political leaders and private sector influences, has sparked debate about the long-term impact on the economy and public services.
Federal workers’ salaries make up less than 5% of total federal spending and about 1% of the US GDP. According to Don Kettl, a professor emeritus at the University of Maryland School of Public Policy, the $336 billion spent annually on federal payroll is “a tiny little drop in a very, very big bucket.” However, this small fraction has come under scrutiny as part of the larger debate on how to reduce US spending, which totaled almost $7 trillion in 2024.
Record layoffs and their causes
In February, US employers announced over 172,000 job cuts, a dramatic 245% increase from the nearly 50,000 job cuts reported in January. The increase was partly fueled by canceled government contracts, trade war concerns, and bankruptcies. According to the outplacement firm Challenger, Gray & Christmas, more than 62,000 of these job cuts came from federal agencies, with the Department of Veterans Affairs (VA) planning to eliminate an additional 80,000 positions.
The government’s drive to cut spending and improve efficiency is being heavily influenced by the Department of Government Efficiency, which has supported these layoffs as a means to reduce what it views as wasteful government spending. As reported by the Marketplace, the efficiency measures are led by Elon Musk’s DOGE initiative, which aims to reduce federal payroll despite the relatively small portion it makes up of overall spending.
The impact on federal services
Experts warn that indiscriminately cutting federal jobs could have substantial long-term consequences. Matthew Shapiro, an economics professor at the University of Michigan, emphasized the risks of these cuts, noting that federal workers play a vital role in services that keep the economy functioning smoothly. “When there’s a bank failure, we have federal employees who… will close it on a Friday and make sure it’s open Monday morning so that depositors can be paid,” Shapiro said in an interview with the Marketplace.
Despite these warnings, some argue that the federal workforce could be more efficient. Wendy Edelberg, a senior fellow at the Brookings Institution, suggests that while some inefficiencies exist, cutting federal jobs may not be the most effective way to address the nation’s growing fiscal issues. “These workers are not what I would consider low-hanging fruit,” Edelberg stated.
The broader economic implications
The US faces growing fiscal pressures, largely due to the increasing number of retirees and the rising costs of Medicare and Social Security. While experts like Shapiro and Kettl acknowledge the need for fiscal reforms, they caution against blind cuts to the federal workforce. Kettl noted that tax cuts and other financial measures often limit the government’s ability to reduce spending, making comprehensive reforms even more challenging.
As the US government continues its push to reduce costs, the focus remains on finding a balance between maintaining essential public services and ensuring long-term fiscal sustainability. However, experts agree that cutting federal workers without a clear strategy could lead to unintended consequences that ultimately harm the economy and the people who rely on government services.
